1031 Exchange Information

A 1031 exchange is for the purpose of deferring taxes on the sale of an investment property, by purchasing a replacement property with the proceeds of the sale. " The numbers "1031" refer to the IRS code 1031 which states the circumstances under which one may take advantage of this rule.

The Basics of a 1031 Exchange

• Properties relinquished and purchased must both be "like kind", and for business use, not owner occupied.

• All proceeds from the sale must be held by a third party "qualified intermediary" until the purchase of the replacement property.

• Property purchased must be of equal or higher value than property relinquished.

• Loan amount of property purchased must be equal or higher than property relinquished.

• From the date of closing of the relinquished property, you must identify the replacement property within 45 days, and close the sale of the replacement property within 180 days.

• Follow the 3 rules for identifying replacement properties:
  Regardless of the number of relinquished properties transferred by the Exchanger as part of the same exchange, the maximum number of replacement properties that the Exchanger can identify must meet ONE of the following requirements:
  
       1.) 3 Property Rule - You may identify up to 3 replacement
            properties regardless of their value.
       2.) 200 Percent Rule - You may identify any number of properties
            as long as their total fair market value at the end of the 45 day
            identification period does not exceed 200 percent of the value
            of all relinquished properties.
       3.) 95 Percent Rule - You may identify any number of
            replacement properties before the end of the identification
            period regardless of value, but only if you actually close
            identified properties valued at 95% of all identified properties.
   

• Replacement property must be unambiguously described by a legal description, street address, or distinguishable name.

Please discuss any planned exchange with your accountant, financial advisor or attorney to insure it is the best decision for you and your individual situation.